Australia’s Spending Wave and outlook for 2010 and beyond

In my earlier post Case for Deflation – Part 2, I talked about the concept of the “Spending Wave”. Do read that post first if you are not familiar with what it is. Using population estimates from the United Nations, Harry Dent has plotted Spending Wave charts for all countries in his book and they can also be found in this document The Spending Wave and Innovation Wave on his website. Australia’s Spending Wave can found on Page 24. When I first looked at it, I was quite relieved as it looked a lot healthier than many other countries in the region. The Spending Waves for Japan, South Korea, China, Hong Kong and even Singapore (all found on Pg 23-24) all show steep declines after 2010 (or a little later in some cases) which never recover, while Australia’s spending  is only expected to only plateau between 2010 to 2020 and actually rise a little after that.

Australia’s outlook is good, due to high immigration rates which make up for the low birth rates. I always knew immigrants affected the economy but I never realised the extent until I did a little further research. According to this media release by the Australian Bureau of Statistics (ABS), Australia had a mini population boom last year, which was equivalent to the baby boom years in the 1950s and 1960s. Our population grew by 2.1% which is nearly double the growth rate of 1.2% five years ago. As at 31 March 2009, Australia’s population had increased by 439,100 people over the previous year. Sixty-three percent (63%) of this growth was a result of immigration. Natural increase only contributed 37%. Unlike new babies born who will not be able to make any significant contribution to our country’s spending for at least 20 years, each new immigrant family are immediate big spenders as they all need to buy (or at least rent) a house, a couple of cars, and many other big ticket household items soon after they arrive. Unlike natural population growth, the government can choose who they accept as immigrants. All immigrants have to undergo health checks and only healthy people are accepted. Based on the Migration Program Statistics from the Department of Immigration, 67% of immigrants were accepted under the Skills program, which means that they are young and have skills that Australia needs, so they are likely to get jobs and be able to continue to spend and pay taxes, etc.

However, all is not hunky-dory just because we have a reasonable Spending Wave as consumer spending is not the only thing that impacts the economy of a country. Exports contribute 14.5% to our Gross Domestic Product (GDP). Australia’s main exports are commodities like coal, iron ores, tin ores, wool, beef, barley, and raw sugar. The top 5 countries that Australia exports to are China, Japan, US, UK and South Korea. Most developed countries are expected to experience a slowdown in their economies after 2010 so commodity prices are expected to slump as demand declines. Harry Dent also observes that there is a 29 to 30 year Commodity Cycle and that is also due to peak in 2010. Australia’s economy will be significantly impacted by a fall in commodity prices.

In his visit to Australia in June 2009, Harry Dent says the worst is yet to come for the Australian economy in this news article. Although we have good demographics, our house prices are among the most overvalued in the world. “When you have to deleverage a major bubble in stocks and housing and commodities . . . it doesn’t just get over with in one year with a nice stimulus program,” he says. In the crash ahead for the global economy within the next two years, we will fare better but we won’t come out of this unscathed. He predicts that Australia’s sharemarket will halve in value, house prices will slump as much as 40 per cent and unemployment will climb to 10 per cent.

High unemployment will also increase anti-immigrant sentiment as immigrants would be blamed for stealing jobs from locals. Immigration will slow down and some immigrants may even leave if they cannot find jobs, selling their homes when they go which will not help house prices. This is already happening in the US and you can find out more by listening to Podcast 115 on The Disciplined Investor. In Australia, Indians already feel that there is “anti-Indian” sentiment and have been very vocal about it. According to the 2008-09 Migration Program Report from the Immigration Department, India is the second largest source country of immigrants after the UK. If this sentiment is not addressed, we may see fewer Indian immigrants in the future which will be a loss for Australia as India has great demographics and is expected to be one of the most dominant global economies in the future. As a final note, the Spending Wave charts are based on current immigration rates. If the immigration rate slows down, the Spending Wave for Australia may not be as healthy as the one we currently see.

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Posted by on Oct 6th, 2009 and filed under Opinions. You can follow any responses to this entry through the RSS 2.0. You can leave a response by filling following comment form or trackback to this entry from your site
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10 Responses for “Australia’s Spending Wave and outlook for 2010 and beyond”

  1. [...] the UK, Ireland and Spain, and knowing what we know about demographic trends (see my Oct 6 post on Australia’s Spending Wave and other articles in that series), I think it is very risky to be buying property at these lofty [...]

  2. Terence says:

    This immigration boom is going to be the wreck for future young Australians. Why would they care to have a stake in a society where they are CONDEMNED to be at the bottom of the property ladder? Doesn’t anyone see this? Doesn’t anyone care?
    We are going to have slums and trailer parks and our way of life will be destroyed.
    Australia doesn’t have enough water to support all these people. Australians will never be given a say ( unlike the swiss model of democracy) as there are too many vested interests that want to fill the country up with people. White collar immigration will keep wages low and house prices up as this blog entry details. What about the Aussie man?

  3. Lea Tucke says:

    Have you ever considered adding more videos to your blog posts to keep the readers more entertained? I mean I just read through the entire article of yours and it was quite good but since I’m more of a visual learner,I found that to be more helpful well let me know how it turns out. Keep up the great works guys I’ve added you guys to my blogroll. This is a great article thanks for sharing this informative information.. I will visit your blog regularly for some latest post.

  4. Christina says:

    Terence,
    I share your concerns for the future (I have 2 kids myself) and disagree with a lot of the current government’s policies on immigration and changing the foreign investment rules that have caused Australia to have the most unaffordable housing in the world.

    Sharing your views through comments is a good start in letting our leaders know what normal Australians think. Don’t underestimate the power of the internet. Just look at what the Tea Party Movement in the US has been able to achieve.

  5. Christina says:

    Lea,
    Thanks for your comments and suggestions. I will try to add more interesting media in future blog posts.

  6. [...] Harry creates what he calls “Spending Waves” for each country. I wrote a post called Australia’s Spending Wave and outlook for 2010 and beyond based what I learned from this book in October 2009 and it remains one of the most popular posts on [...]

  7. Mervyn Jacobi says:

    Australia and the rest of the world have no chance of returning their countries to full economy if they don’t return to the top tax structure that was found necessary in the years following the 1930′s depression. They had found that a minimum top tax of 66.6% tax necessary but did not realise that a higher level of tax free income was also necessary to keep the Level about 30% and to give the low income earners a chance to live a decent life, raise their families and buy and keep their own home. The low level of intelligence these tax organisers show is beyond comprehension, lawyers do not learn to organise taxes, all it needs is for the political parties to grow a brain, throw their “pledge” away and be honest and show democracy at work.

  8. Mervyn Jacobi says:

    By the way, the mining and the export of non restorable and non value added resources can only be described as the idea of an idiot or a traitor, Once these resources are sold, they are gone for good, and when the payment for them is made by goods which have been manufactured here and this manufacturing factory is destroyed by lack of work, we lose, when do they stop, when we have no more of these rescources? The price of our coal can be found to be only about 30% of its value, and many of the products for payment are similarly reduced in price so the companies buying them are buying those they can get at the lowest price. No allegiance in these companies, just where they can make the most profit.

  9. Mervyn Jacobi says:

    Quite bluntly, it is very hard to find an incident in which all the parties – or more truly, the liberal/national and the labor parties are not so wrong. The coal sales should only be used to gain equipment etc that we cannot manufacture ourselves or provide any minerals or such that is not available here in Australia. The payment we get for our exports now, consists almost entirely of the type of goods that we had been manufacturing ourselves, but as I said, the low price of our mined resources subsidises the imported goods and this destroys our own industries. There are more complaints which I find abominable, some people are greedy, and when the top tax is low, greedy CEO’s and similar people grab as high a salary as they can take and this takes away wealth that is needed for projects and also increases the price of the products they produce, the price of everything skyrockets, homes, food and well – everything, not leaving sufficient to ensure that the companies can employ workers – We all lose. One more thing, the boat people, it is fair enough to allow them to arrive, but it is obvious that by giving them living quarters and feeding them in a way that even our own wage earners can’t afford, they are also providing internet access where they can invite more boat people here to sponge on us, telling their friends of their wonderful treatment. They should have to rough it the same as our early pioneers did, I know my Grandfather had to find his own way to where he built his own shack and clear the block of land he bought, before finding and gaining a wife and raising a family. In those early days, The ships then were not that much more safe or comfortable than those the boat people are using now. Wouldn’t it be great if our parliamentarians all grew a brain, then they wouldn’t have to get their knowledge out of a bottle or those idiot pills which seem to be so popular these days, and which seems to be the reason, I don’t believe that any normal person could be so stupid.

  10. Mervyn Jacobi says:

    You would think that lawyers would have some reasonable intelligence wouldn’t you, but – apart from the greedy pig farmer in the 1980′s, the rest of our treasurers and most of our PM’s have been lawyers, and they have been very poor at keeping the good economy that we had in the 1950′s to1970, they have destroyed our economy, and are adamant that their decisions have been correct, despite the fact that we have gone into a recession, and are still just lingering along on the verge of it. Of course, they are all taking their excessive superannuations or pensions what ever they are called and don’t care that many of our workers are still losing their jobs and homes from all this wonderful decisions these lawyers have made.

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